The Reverse Mortgage Program Information Blog

It’s interesting to note the increase in inquiries into our center from people who are choosing to obtain a reverse mortgage now. Their reasoning is that, with the forecast of property values in most areas of the country being flat or declining, now might be the best time to obtain a reverse mortgage for the foreseeable future. In essence, there might never be a better time. 

They might be right. 

If after careful evaluation you determine that a reverse mortgage is part of your overall financial strategy, the current climate of low interest rates will provide you with maximum fund availability. Your property’s value and the current interest rate are two of the key components (along with the age of the youngest title holder). Remember, interest rates and your net available funds move in opposite directions: when the rates increase your maximum equity availability declines. 

A reverse mortgage provides a variety of ways for a senior to access their funds: Term Payments for a specific period of time, Tenure Payments for as long as you remain in your home, or a Line of Credit from which you can transfer funds for use as you see fit. 

Best of all, you never have to make a payment as long as you live in your home. 

Keep in mind that it’s not necessary to use your equity line of credit right away. It can serve as a lifeline to address any situation that arises. 

For many seniors the line of credit option gives them equity growth on the unused portion of the mortgage—and a lot of peace of mind.

At a business meeting earlier this week I was seated beside another guest. Unknown to each other we introduced ourselves. The question that followed was the inevitable: “What do you do for a living?” 
He is an attorney in general practice. I explained that I am a Senior Advisor for reverse mortgages. Upon hearing that he paused reflectively then said, “Hmm, that’s an expensive way to go.”
 
It’s not an uncommon response.
 
What was uncommon was his silent reaction to my follow-up question: “Compared to what?” 
When speaking with a client who is considering a reverse mortgage I always suggest a couple of essential steps for them to take early in the evaluation process:
1)      Define your objective
2)     Look at every alternative
3)     Review your financial situation with a professional or trusted advisor
 
Let’s evaluate these steps: 
Defining your objective
While it may seem obvious, it’s important to identify the specific goals you want to accomplish with your reverse mortgage. For some it’s a matter of simply paying off debt to free them from monthly payments. Others want the security of available cash to cover any contingency that might arise in these volatile economic times.
 
Look at every alternative
Ask yourself a fundament question: “Do I want to stay in my home?”
If the answer is no a then a reverse mortgage makes no sense. That said, the longer you intend to remain in your home the more sense a reverse mortgage makes from an economic standpoint.
 
Cast a wide net by making a list of every conceivable alternative to the reverse mortgage. Do you have alternative funds to draw on to meet your needs? Dwindling 401K’s and diminished stock portfolios have changed many people’s thinking on this question.
 
Is there a family member, such as a son or daughter, you would feel comfortable moving in with?
 
How about downsizing your home? Would moving to smaller quarters address your needs? (A reverse mortgage to purchase is a relatively new and woefully misunderstood option where a reverse mortgage can still play a central role. More on that in my next post.)
 
As for the expense, the costs associated with a reverse are similar to closing costs of other loans. But you are not going to pay a realtor’s commission, moving costs, or dealing with any of the other distress which comes with moving.
 
Seek a Trusted Advisor
I can not emphasize enough the importance of financial advice from someone you trust. Most of us have someone we believe has our well being as their priority. Even if the need for a reverse mortgage is obvious, having a trusted advisor to assist you in the process can be reassuring.
Oh, and as to my new attorney friend? Well, he couldn’t provide a single lending alternative to a reverse mortgage which provides cash liquidity, no repayments for as long as you remain in your home, and no income or credit requirements.
I may have made a convert out of him.

The mortgagee letter arrived today announcing the anticipated national reverse mortgage limit increase from $417,000 to $625,500 effective immediately. Any HECM loans insured February 24th, 2009 or after will be based on this limit. Below is the actual mortgagee letter directly from HUD, if you have any questions please contact me.

February 24, 2009

MORTGAGEE LETTER 2009-07

TO: ALL APPROVED MORTGAGEES

SUBJECT: Loan Limit Increases for FHA

This Mortgagee Letter provides information on Federal Housing Administration (FHA) single family loan limits that have changed as a result of the American Recovery and Reinvestment Act of 2009 (ARRA) signed into law on February 17, 2009. These limits are effective for those loans for which credit is approved in calendar year (CY) 2009 and will remain in effect until December 31, 2009. 

FHA Single Family Programs Affected: 

The loan limits described in this Mortgagee Letter are effective for those mortgages insured under the following Sections of the National Housing Act: 203(b)(FHA’s basic 1-4 family mortgage insurance program – including individual condominium units), 203(h)(mortgages for disaster victims), and 203(k)(rehabilitation mortgage insurance).

FHA loan limits for Section 255, Home Equity Conversion Mortgages (HECM) are effective immediately for those loans closed on or after the date of this mortgagee letter. Further instructions for HECM loan limits are set forth below.

Revisions to Current Limits 

Under ARRA, the revised FHA loan limits for 2009 will be set at the higher of the loan limits established for 2008 under the Economic Stimulus Act of 2008 (ESA) or those established for 2009 under the Housing and Economic Recovery Act of 2008 (HERA). 

2009 HERA vs. 2008 ESA Limits: 

Under ESA, loan limits for high-cost areas were set at 125 percent of local house price medians, with a maximum high-cost limit (the national ceiling) of 175 percent of the national conforming limit ($729,750 in the continental U.S.). See Mortgagee Letter 2008-06, dated March 6, 2008.

HERA, on the other hand, stipulated that the national conforming loan limit remain at $417,000 for 2009, and that in future years, it shall be pegged to a house-price index

chosen by the Federal Housing Finance Agency. HERA also provided that the one-unit mortgage limit for any given area shall be set at 115 percent of the median house price in that area, except that the FHA mortgage limit in any given area could not exceed 150 percent of the Freddie Mac national conforming loan limit ($417,000 in 2009), nor be lower than 65 percent of that limit. See Mortgagee Letter 2008-36, dated November 7, 2008. FHA’s floor and ceiling loan limits for 2009 under ARRA, which relies on the higher of HERA or ESA, are set forth below. 

FHA Floor: 

Under both HERA and ESA, and thus under ARRA as well, the FHA national floor limits remain set at the 65 percent amount (the “floor,”) by property size, as follows:

One-Unit $271,050

Two-Unit $347,000

Three-Unit $419,400

Four-Unit $521,250 

“High-Cost” Local Limits 

Any area where the limits exceed the floor is known as a “high cost” area. Because ESA used a higher multiple in establishing the national FHA loan limit ceiling, as a percentage of the conforming loan limit, than does HERA (175 percent versus 150 percent), the ESA national ceiling is binding under ARRA for 2009. By property size, these national “ceiling” limits are as follows:

One-Unit $729,750

Two-Unit $934,200

Three-Unit $1,129,250

Four-Unit $1,403,400

For areas where the higher of the ESA-determined loan limits for 2008 and the HERA-determined limits for 2009 is in between the national floor and the ceiling, the limit shall be at the higher of those two limits, effective for any loans for which credit is approved in CY 2009.

The list of areas where the FHA mortgage limits are at the ceiling is provided in Attachment I. The list of areas where the FHA mortgage limits are in between the ceiling and the floor is provided in Attachment II. For any areas not listed in either Attachment I or II, the FHA mortgage limits are at the floor; this includes the vast majority of those areas (i.e., counties, parishes, boroughs, and independent cities) for which FHA has published loan limits. 

Special Exceptions for Alaska, Hawaii, Guam, and Virgin Islands 

Home Equity Conversion Mortgages 

FHA will, for a limited time, allow HECM loans that received case number assignments but did not close prior to the effective date of this mortgagee letter to be closed using either the old limit that was used to originally calculate the loan, or the new limits as prescribed herein. An option will be made available in FHA Connection for the lender to choose which rate to use. This option will be available until April 30, 2009.

Where to find comprehensive listing of FHA local limits: 

The limits are determined by the county in which the property is located, except that for properties located in metropolitan or micropolitan statistical areas, as determined by the Office of Management and Budget, the limit for the entire area is set based on the county with the highest median price within the metropolitan or micropolitan area. If you are unsure if a county is within one of the metropolitan or micropolitan areas listed on the attachments you should check the internet site before closing the mortgage at the revised limit. For a complete list of all metropolitan counties in the country by MSA, view the most recent bulletin updating statistical areas of definitions and guidance at http://www.whitehouse.gov/omb/bulletins/index.html.  

Requests for Local Increases 

HUD allowed appeals to both the 2008 ESA limits and the 2009 HERA limits at the time that those limits were made public. Because the ARRA requires only that HUD compare those two sets of limits in setting the new 2009 limits, there is no need for any appeals period as a part of this process.

If you have any questions regarding this mortgagee letter, please contact the FHA Resource Center at 1-800-CALL-FHA (1-800-225-5342). Persons with hearing or speech impairments may access this number via TDD/TTY by calling 1-877-TDD-2HUD (1-877-833-2483).

Sincerely,

Brian D. Montgomery -Assistant Secretary for Housing-

Federal Housing Commissioner 

Complete schedules of FHA mortgage limits for all areas, for forward loans and reverse mortgages, are available through the internet at https://entp.hud.gov/idapp/html/hicostlook.cfm

In those areas, the maximum claim payable by FHA is 150 percent of the Freddie Mac conforming limits. To avoid potential cases where a claim could be less than the national limit, as adjusted for the special exception areas, HUD had decided 

Loan limits for the special exception areas of Alaska (AK), Hawaii (HI), Guam (GU) and Virgin Islands (VI) also follow the ARRA rule of choosing the higher of the 2008 ESA and 2009 HERA limits. The National Housing Act permits mortgage limits for Alaska, Guam, Hawaii and the Virgin Islands to be adjusted up to 150 percent of the above national ceilings, by property size, to account for higher costs of construction. Thus, these four areas have a potential higher ceiling in 2009 of $1,094,625 (1-unit), $1,401,300 (2-unit) $1,693,875 (3-unit); and $2,105,100 (4-unit). At the present time, no counties in these areas qualify for limits above the national ceiling of $729,750.

When counseling seniors about reverse mortgages, I recommend looking at all of the options available to the client. A case in point:

Recently I was speaking with a couple from Wisconsin who are in their mid seventies and keenly interested in a reverse mortgage. During one of our discussions the husband was excited at a proposal offered by his children.

“My two sons and my daughter want to buy my house from me by taking out a conventional mortgage and letting my wife and I live in the home for as long as we wish. That way we’ll have our cash and be able to keep our independence. Isn’t that what you offer with a reverse mortgage?”

Sounds just like a reverse mortgage, I agreed.

But there are differences…

First, the homeowner isn’t sure that one of his sons can afford his share of the mortgage triad. Consider how that might make him feel: If he agrees to participate in the forward mortgage, he may be doing so—reluctantly—which could place him in dire financial straights. If he doesn’t participate, how does he view himself and his inability to help? Not to mention the normal sibling rivalries which exist in every family.

Second, (and no one likes to think about this) what are the ramifications in the event that even one of the three children end up in a divorce? I don’t know what calculation is used to determine what monies the divorcing spouse is entitled to from the investment, but I do know that a divorce attorney can probably tell you to the penny.

And what if the needs change for any one of the three children? A job loss is today’s world is always a possibility. If the need arises for even one of the children to acquire a larger home for his/her own family, the obligation to the parental mortgage must be fulfilled (by one—or both of the other two?) 

Thirdly, the conventional mortgage rate will be higher. Because the mortgagees will not be living in the home, this is a secondary investment property. The interest rate they will be paying will be substantially higher than that paid on a primary residence.

A reverse mortgage, on the other hand, provides the assurance that the parents can stay in the home for as long as they desire, allows them to access to their money in a variety of ways, pays interest on the unused portion, and avoids any family crisis that might arise.

The willingness to assist the parents is deep and founded on the best of intentions, but it is those who are being assisted, the parents, who must consider all of these issues before deciding on which path to choose.

Gary Witt is a Senior Advisor at the Reverse Mortgage Learning Center in Voorhees, NJ

www.ReverseMortgageLearningCenter.com

Here’s a quick quiz question for anyone who thinks they know everything about reverse mortgages. What’s one of the most surprising financial obstacles preventing seniors from acquiring reverse mortgage funding on their homes?

Surprisingly, it’s not a lack of good health or a promise to keep the house as their primary residence. And, it’s not about getting permission from family members, credit ratings or having a current income.

Believe it or not, it’s delinquent student loans.

Few phrases are as less likely to be linked than “senior citizen” and “student loan,” but the elderly often co-sign for student loans on behalf of their grandchildren. It is important for our clients to be aware that co-signing can have an impact that goes far beyond the years that a grand child attends college. It’s an obligation that continues for years until the loans are fully repaid.

When seniors apply for a reverse mortgage, the lending institution must be in the primary lien position on the home. Any prior liens must be satisfied in advance or paid from the available cash in the reverse equity line before any additional funds can be released to the homeowners.

Often seniors who have co-signed for student loans are unaware that, when delinquent, these loans convert to liens on property the seniors believed to be free and clear. This can significantly reduce the amount of money available to seniors when they need it the most. They are often not aware of the commitment they have made until the worst possible time.

Gary Witt is a Senior Advisor at the Reverse Mortgage Learning Center in Voorhees, NJ